1. Field of the Invention
The present invention relates to financial business systems, and more particularly to data processing methods and apparatus for extending lines of credit to life insurance policyowners.
2. Description of the prior art
It is a common practice for life insurance companies to extend loans to policyowners using the cash value of their policies, and consequently, reducing the face amount of the policy by an amount equal to the size of the loan. The interest charged to policyowners is relatively low since the collateral is of high quality. Life insurance companies, however, need substantial personnel to administer and service these loans. Policyowners are reluctant to borrow against their policies because they do not want to deteriorate their life insurance arrangements and also fear the stringent penalties for default.
The insurance companies have better alternate prospects for investing their policyowners' cash value funds, specially, in view of the high cost of administration.
The other alternative for the policyholder is to borrow through the conventional bank credit cards at high interest rates, usually 1.5% per month. Banks have to charge this high rate, which usually corresponds to the maximum allowed by law, because of the high risk involved. Presently, the default ratio exceeds 2.1% annually. The present invention will practically eliminate defaults with credit cards by using the cash value funds held by the insurance companies as collateral and the borrower will benefit by receiving a lower interest rate reflecting lower administrative and default costs.
The closest prior art corresponds to U.S. Pat. Nos. 4,376,978 and 4,346,442 issued to Musmano and assigned to Merrill Lynch Pierce Fenner & Smith, Inc. There, a cash management system coordinates a user's transactions so that his assets may be readily available in an efficient manner by causing changes in his charge media, short term money fund account and/or his securities brokerage account. These patents, however, do not even suggest a system that utilizes the cash value inherent in life insurance policies.
Another patent relating to a financial method and system is U.S. Pat. No. 4,194,242 issued to Robbins. Here, the interest rate of a loan is automatically adjusted depending on the ratio of the borrower's funds on deposit to his outstanding indebtedness. Again, no mention is made here of life insurance cash values, the inherent characteristics of these assets or how to unlock them for an efficient utilization by a user.
Other patents describing the closest subject matter provide for a number of more or less complicated features that fail to solve the problem in an efficient and economical way. None of these patents suggest the novel features of the present invention.